Parenting brings many joys and challenges, not the least of which is teaching your kids how to develop good money habits from an early age.
The best way for your kids to avoid going into debt or making other poor choices is to learn the value of money directly from you.By Kopi Buddy
Whether your kids are in kindergarten, fifth grade, or high school, this article is rich with advice on how to help your children learn about money. And if you want, you can even gamify the learning experience by having money saving challenges with your kids.
How to Teach Your Child to Save Money
One of the best ways to teach your child about money is to have them start saving from a very young age. By teaching your child how to save money, they will be able to build a healthy financial foundation for themselves as they grow older.
Since there is no time like the present to begin imparting key life lessons, here are 15 ways to teach your child to save money at different stages of their life; preschoolers, school-age kids, and finally teens.
Money-Saving Tips For Preschoolers (3 to 5 Years Old)
This may surprise some parents, but kids can begin learning about money as early as three years old. They may not be able to tell coins and different denominations of bills apart, but they can still at least begin to grasp the concept of how money works and what it can be used for.
1. Talk About Money
Many parents don’t like to talk about money with their kiddos, perhaps because they’re embarrassed about past money mistakes or worried that their kids aren’t mature enough for the subject.
While you don’t need to discuss stock options with your kindergartener, you can still talk about money. Your kids are going to learn about it someday, so they should hear it first from their parents, who have the biggest influence in steering them in the right direction early on.
One way you can show your kids the value of money from an early age is to show them when you pay with cash or let your children hold the receipts after purchases.
Tangible objects such as cash or receipts will help your kids realize that money is a real thing that is important to know about.
2. Teach Wants vs. Needs
Even before your kids know the meaning of “delayed gratification,” you can begin teaching them the core concept by pointing out the difference between things you need and things you want.
As you go about shopping or on the drive home from the store, point out different things that are life basics, such as the most essential grocery items (meat, fruit, veggies, milk, etc.), and contrast them with things that are merely fun, like toys, candy, or Hostess cakes.
Over time, your children will begin to understand that spending money on some things is more important than others.
3. Use the Three Jar System
The quintessential teaching aid for helping your children learn the value of money is the classic Three Jar System. Instead of having your kids put all of their loose coins and occasional bills into a piggy bank, have them store the cash in three separate, clear jars, labeled:
Whenever your children earn money for chores or receive cash from grandparents and other relatives, have them divide it between each jar.
One example is to have your kids put one quarter into the “Give” jar and one quarter into the “Save” jar for every dollar they receive. The remaining 50 cents can either be thrown into the “Spend” jar or portioned out into the other two jars.
Because younger children have trouble understanding abstract concepts, having their money physically divided into different jars will help them associate their cash with different purposes. Once the kids get older, you can start using percentages.
4. Set a Good Example
While you’re teaching your kids good money habits with their pocket change, you can have an equally foundational influence by demonstrating your own good financial habits:
Kids follow the leader, especially in the case of their parents, so seeing a father or mother deliberately set money aside will encourage them greatly toward saving their own money.
How School-Aged Kids Can Save (5 to 12 Years Old)
5. Pay Allowances for Chores
Allowances can be controversial. Some parents only want to pay their kids when they do chores around the house, while other parents worry that connecting allowances to chores will teach their children not to help the family unless they can get something out of it.
One possible compromise is to give your children a small allowance as a sort of “stipend,” than to teach them that some chores around the house have to be done simply because the kids are part of the family. Other chores, meanwhile, can have a price attached to them, so that a child wanting some extra moolah can go above and beyond to get paid for it.
No matter which path you decide to follow, providing your kids with some form of consistent “income” is essential for teaching them how to save, spend, and give that money regularly and wisely.
6. Set Savings Goals
As your kids get older and begin to grasp the concept of saving up for something, encourage them to set a goal to save up enough money for a specific purchase.
For example, instead of buying your child an expensive toy, encourage him or her to set money aside until they can afford to buy it for themselves.
Providing a tangible goal helps your child associate saving and hard work with positive outcomes and gives him or her something to look forward to.
7. Consider Providing a Bonus for Saving
If your children want to save up for a particularly expensive purchase, such as a $300 gaming console, you can help incentivize them by offering a matching bonus. Just like an employer may offer matching contributions to a company 401(k), you can offer to match your child’s weekly or monthly savings.
For example, you could offer to make a matching 10% contribution for every month’s worth of savings toward the big purchase. If your children save $100 in a month, you add $10 of your own money to the pile.
8. Encourage Waiting on Big Purchases
The Three Jar Method can do wonders for helping kids avoid impulse buying with their pocket change. But what about when your children change their minds about what they want to dish their savings out on?
Ask your child to wait at least one day before handing over the cash. This “cooling off” time period will give them the opportunity to reflect on if whatever they want to buy will really be worth the time and effort they put into earning their saved money.
9. Teach Spending Tracking
Whether digitally through a program like Excel or with a good old pen and paper, your kids can learn to mark down and track every single expense they make.
Even before they learn the ins and outs of a budget, your children will gain a better idea of where their money goes every month if they write it down.
10. Set Up a Kid-Friendly Savings or Debit Account
Once your kids reach about age 11-12 years old, they can potentially operate their own savings account. If they’ve shown themselves to be particularly money-wise, they could even be ready for a prepaid debit card.
Services like FamZoo or Greenlight offer options for setting up automated allowances and chore charts, opening a prepaid debit card, and even earning interest on savings. These tools can help your kids prepare to take the plunge into greater personal finance waters.
Savings Tips For Teens (12 to 18 Years Old)
11. Use a Digital Budgeting App
Your children will be able to budget for specific line items, mark each type of income they receive, and track spending throughout the month. Even better, these apps can continue to be used into adulthood.
12. Highlight Bigger Savings Goals
Once your kids are old enough for summer jobs or even part-time jobs in high school, encourage them to maintain the savings habits they developed in their younger years.
For example, encourage your kids to set aside a percentage of their wages toward something big they want, whether that’s a first car or college.
13. Be a Creditor to Your Kids
From time to time, your kids may come to you asking for money. If it isn’t an emergency situation, consider acting as a creditor by loaning the money with interest.
While your interest rates will surely be better than the APR on a Chase or Visa credit card, it will still incentivize your kids to be slower to spend and quicker to save.
14. Discourage Most Credit Cards
You don’t want your kids getting involved in credit cards any more than necessary. Most credit cards can do serious damage to your children’s financial future, but you still want your kids to build up credit. Fortunately, more and more companies are springing up to offer debit cards that build credit.
The first such card, Extra, links directly to a checking account and sets a daily spending limit based on past spending history. Purchases are made on credit, which is then deducted from the debit account the following business day. This payment information is then sent to two of the three major credit bureaus, enhancing credit while offering the security of debit purchases.
15. Set Up a Custodial Investment Account
As your kids get older, you can use the account to demonstrate the magic of compound growth and long-term savings.
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